Every few years a scandal makes the case for prying pay into the open. Executives cash out while frontline workers are laid off, a public official turns out to be earning a fortune, and legislatures respond by mandating disclosure. The moral intuition is clean: if the numbers were shameful, shame will discipline them. What that intuition ignores is how the people at the top respond once the spotlight is fixed on them. Forced transparency does compress pay, but it also changes who is willing to stand under the light, and the second effect can undo the first.
A natural experiment in disclosure
The sharpest evidence comes from Mas (2017), who studied a California law passed in 2010 after the city of Bell was found to be paying its officials extraordinary sums. The law required municipalities to post the compensation of their managers online, which created a natural experiment in transparency: comparable managers went from opacity to full public exposure by rule rather than by choice. Disclosure led to a reduction in managers' pay, on the order of 7 percent, direct evidence that transparency can compress salaries at the top. So far this is the outcome reformers want. But the same study found that quit rates among these managers rose after their pay became public. The exact magnitudes are best treated as approximate, yet the qualitative pattern is firm: compression came bundled with more departures. What makes the study valuable is that the transparency was imposed by statute rather than chosen by the organization, so the response is not contaminated by the self-selection that muddies voluntary open-pay experiments. These were comparable managers who woke up one morning newly visible, and the market did the rest.
Why the two effects travel together
The reason compression and flight are linked is that a public number is not just information, it is a constraint on negotiation and a magnet for comparison. Cullen (2024) draws the distinction that makes this legible. Horizontal transparency, letting people see peers' pay, tends to reduce effort and satisfaction when it reveals disadvantage, while cross-firm transparency laws tend to compress and lower wages because they weaken an individual's bargaining hand. Forced disclosure of senior pay combines the worst of both for the incumbent: it invites every peer and subordinate to benchmark against them, and it removes the discretion that let the organization pay a premium quietly. A capable manager who can command more elsewhere now has both a reason to feel exposed and a market that still rewards discretion. Some of them leave.
The comparison mechanism is not speculative. Card, Mas, Moretti and Saez (2012) showed that when University of California employees were given access to a public salary site, those who found they were below their unit's median grew less satisfied and more likely to job-hunt, with no offsetting boost for those above. Publishing a manager's pay does not only inform that manager. It informs everyone who now measures themselves against it, and it hands the underpaid a fresh grievance while giving the overpaid manager a new incentive to look for a less transparent employer. The effect compounds, because each departure and each replacement resets the benchmark that everyone else is watching, and a benchmark that only ratchets downward is exactly what a compression dynamic produces.
The practical read
None of this is an argument for secrecy, and Mas's own results show that disclosure delivers real compression, which many organizations should want. It is an argument against treating transparency as costless. If you are flattening pay or opening it up, decide in advance whether you are prepared to lose some of the people whose numbers look large in isolation but defensible in context, and whether the compression you gain is worth the retention you spend. There is a version of this that is entirely healthy, where disclosure trims a premium that could never survive an honest explanation, and a version that is quietly destructive, where it drives out the person who was worth every dollar the moment the market could see the dollars. The difference between the two is not the size of the cut. It is whether the pay was defensible before the light hit it. The alternative is to pair openness with justification, so a senior salary arrives with the mandate and the results that explain it rather than as a bare figure begging to be resented. Forced sunlight will shrink the number on the page. Whether it keeps the person attached to it is a separate question, and the honest reformer answers it first.
Sources
- Mas (2017). Does Transparency Lead to Pay Compression? California's mandated online disclosure of municipal manager pay reduced their salaries by roughly 7 percent while raising quit rates, the core evidence that transparency compresses top pay at the cost of retention. https://doi.org/10.1086/693137
- Cullen (2024). Is Pay Transparency Good? The review distinguishes horizontal, vertical and cross-firm transparency and notes that cross-firm laws tend to compress and lower wages by weakening individual bargaining power, explaining why disclosure and departures travel together. https://doi.org/10.1257/jep.38.1.153
- Card, Mas, Moretti and Saez (2012). Inequality at Work: The Effect of Peer Salaries on Job Satisfaction. Access to a public salary site lowered satisfaction and raised quit intentions among the below-median, showing how a published number spreads its effect to everyone who benchmarks against it. https://doi.org/10.1257/aer.102.6.2981